Why strong hiring may continue through rest of the year

The U.S. economy has produced at least 200,000 new jobs in seven of the past eight months and all signs point to similarly strong hiring through the end of the year.

The latest evidence? A ninth straight increase in the employment trends index produced by the Conference Board, a nonprofit economic-research firm. The index is now 6.1% higher than a year ago.

The index has shown a strong relationship with U.S. hiring trends in the past, drawing on eight indicators to offer a more complete picture of the labor market (see list below).

(A new, all-purpose labor-market indicator created by the Federal Reserve, meanwhile, was somewhat less optimistic. The Fed issued its index for the very first time on Monday.)

Not all the news is good. One reason hiring is picking up is because companies cannot wring out more productivity from the workers already on payroll. They have to add staff to sell more goods and services, but sluggish productivity growth means wages probably won’t rise very fast.

The rapidly falling unemployment rate is also a byproduct of more people dropping out of the labor force, a trend that’s likely to persist for years. The retirement of the baby-boom generation explains much of the decline, but not all of it.

“A combination of positive and negative forces has been driving the rapid decline in the unemployment rate in recent years,” said Gad Levanon, director of macroeconomic research at the board. “Hiring is strong, but productivity growth is weak, and the participation rate continues to decline. None show signs of reversing.”

The employment trends index is composed of the following eight indicators: